Question on LLC member distributions w/o closing books

[Matt Kowske]

On 02/20/2015 05:54 PM, Wm wrote:
>> At the end of each accounting period the Income/Expense accounts are
>> zero'd to the Retained Equity account. 'Member A Equity' and 'Member B
>> Equity' are credited from the 'Retained Equity' account according to
>> their share in the LLC and also zero'd with the
>> Contributions/Distribution accounts. When a distribution happens there
>> is a debit to the Distributions account and a corresponding credit to a
>> checking account that holds the LLC funds.
> Ah, so the LLC does have Assets and Liabilities after all.  You seem to
> be running the LLC exclusively through Equity, Income and Expense and
> not acknowledging much if any Assets or Liabilities the LLC may have as
> an entity.
Sorry, I left those out for simplicity, but yes.. there is a lot more to
the full CoA.

> if you are going to arse about with retained equity in a two person
> LLC then why not divvy it out there and then? the answer is probably
> tax but don't make the LLC something it isn't is my advice.
>> and just let that be
>> auto-calculated on the balance sheet. Distributions would still occur
>> against the same account (e.g. 'Member A Distributions').
> Not quite, gnc is mainly used to do the sums for "a book" in this case
> the entity "the book" seems to encompass is the LLC, if you want to take
> some or all of the Assets of the LLC, and transfer them to the Equity
> accounts of A and B then that is cool so long as you record that in most
> places.  Normally you transfer the money out of the entity accounts and
> into the Member Accounts by writing a cheque or making a bank transfer.
>
> Neat and tidy for the LLC Equity Account.

Alright, so if I follow you correctly, you are saying to simply make a
transfer from the assets to equity. Distributions are then deducted from
the member equity account when a check is written. What I'm having
trouble with is that if I were to make that transaction in GnuCash --
transfer from assets (checking account) to equity (Member A Equity) --
the money is still in the checking account. While the balance of the
checking account from the bank will say one thing, GnuCash would say
another. By transferring from the income/expense accounts into equity
that doesn't happen, since you're doing an equity->equity transfer, both
of which are abstract.

>> Since it is just 'Income-Expenses' it will
>> not account for the member distributions that happened.
> Wouldn't that be because you haven't actually made them? If you do make
> them they will be included.

They would only be included if classified as an expense. I guess it is
more of an accounting question as to if member distributions should be
considered an expense or not but that isn't how I think of them. When
evaluating the net profit of a business I would look at the revenue -
expenses. A profit distribution or dividend isn't an expense in that sense.

>> From what I
>> understand it SHOULD account for this as the definition of retained
>> earnings is net profit - dividends (which in this case is called a
>> distribution).
> Try the Equity Statement for another view of were you started, where you
> ended up and what happened in between with a few dates (try a few months
> apart where you know something or nothing happened to get the feel) to
> see if things make more sense.
>
>> I am struggling with where the distributions ultimatley come from in the
>> double entry accounting
> That's easy.  Assets (decrease) or Liabilities (increase).
>
> Alternatively, you could try and run an entire business through Equity.

Again, to increase a members equity account from a real asset like a
checking account would make my balance out of sync with what the account
really holds. It seems to come down to whether it is okay to classify
the payout as an expense. I think this could work if there was an option
in the Balance Sheet report options to define exactly which accounts are
used to calculate 'income' and 'expenses'. I would just exclude
'Expenses:Member Distributions' from that calculation.

>
> Now where were we????
>
>> when you don't close out the income/expenses.
> It is irrelevant to the payout if you don't try to run the whole thing
> through Equity.  The other balance sheet accounts are there for a
> reason, use them!
>
>> I
>> would like to know how others handle this -- thanks.
> One way is to run some reports, work out who gets what and make
> appropriate payments.  Record them.  Ordinary.
>

Thank you for the responses -- hopefully I've cleared up my problem a
little.